when choosing the highest present value contract, how large an annuity can billy pay himself for the next 40 years at 10% interest? Contract 1 $900,000 signing bonus $850,000 at the end of each year for the next 5 years Contract 2 $200,000 immediate signing bonus $100,000 at the end of each year for the next five years $150,000 a year at the end of years 5 through 10 $1,000,000 a year at the end of years 11 through 40 Contract 3 $1,000,000 immediate signing bonus $500,000 at the end of year 1 $1,000,000 at the end of year 2 $1,500,000 at the end of year 3 $2,500,000 at the end of year 4 As part of the third offer he was also promised a $200,000 bonus for any year in which he was selected to play in the Pro Bowl All Star game. his agent figured there was a 25% probability of that occuring in each of the next 4 years.
when choosing the highest
Contract 1
$900,000 signing bonus
$850,000 at the end of each year for the next 5 years
Contract 2
$200,000 immediate signing bonus
$100,000 at the end of each year for the next five years
$150,000 a year at the end of years 5 through 10
$1,000,000 a year at the end of years 11 through 40
Contract 3
$1,000,000 immediate signing bonus
$500,000 at the end of year 1
$1,000,000 at the end of year 2
$1,500,000 at the end of year 3
$2,500,000 at the end of year 4
As part of the third offer he was also promised a $200,000 bonus for any year in which he was selected to play in the Pro Bowl All Star game. his agent figured there was a 25% probability of that occuring in each of the next 4 years.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 8 images
